A VC's musings on the blending of education and technology

July 25, 2007

30 years ago, banks were largely regional in nature. Today, big banks not only have a nationwide footprint in the U.S., but a huge international presence as well.

This begs the question: will the big U.S. for-profit education companies ever focus on international markets? Will there ever be a Citibank equivalent in the education space?

UOPX, Kaplan and others have dabbled internationally, but Laureate is the only major provider who has a significant portion of revenues from international operations. There are certainly acquisition targets out there: Veris in Brazil,
UNITEC in Mexico and New Oriental in China come directly to mind. Valuations may be rich, but learnings from the US market certainly have synergistic value in maturing markets, especially with regard to marketing and online education.

May 13, 2007

There are two extremes as to how market a school, which I'll call "inside out" and "outside in." "Inside out" is to build an incredible reputation, open the doors and select which students you want to come in.
"Outside in" is to spend direct marketing dollars to buy Internet leads and reach out to potential students via either inside sales or fields reps. Inside out requires a larger investment in business development and career services while the outside in model requires more investment in upfront marketing and admissions.

A great example of "Inside out" marketing is the Parsons School of Design in New York. In addition to the publicity from Project Runway, Parsons lures students with the opportunity to work with some of the premier design firms in the field. A list of projects on the Parsons website includes designing a new watch for Fossil, designing a line of accessories for Vespa, working with Chanel, Hermes and Saks. This pdf is an impressive summary of the opportunities Parsons gives its students. With these opportunities, students flock to Parsons without a great deal of marketing investment on Parsons part.

The alternative means of drawing in students - the "outside in" model - is via direct marketing and lead gen. A school runs local TV or engages lead vendors for Internet ads, generates "leads" and then calls those leads from a call center. Speed to contact and the skill of the admissions advisor are primary differentiators under this model. From 2000-2005, this market was dynamite for the for-profit early entrants into the online post-secondary education market.

Schools never fall strictly in the camp of "outside in" or "inside out". Even Wharton visits dozens of cities around the world each year to recruit students. But, as the market continues to become more competitive, for-profits can no longer rely too heavily on the "outside in" model. You see this with UOPX buying naming rights to Arizona Stadium, UTI's partnership with Nascar and other industry players increasingly trying to differentiate their brands. A generic IT/business program and a killer direct marketing model is no longer enough, unless it is paired with true brand differentiation.

The for-profit education sector enrolls the bulk of its students from calling leads generated via direct marketing - the bulk is the Internet but other channels include TV, outdoor, radio, newspaper, etc. It is tempting to evaluate these channels in silos - for example, a TV ad campaign in a local market might have a ridiculously high cost per lead of $1,000 - but did that particular campaign cause a lift in that market's conversion of Internet leads?

We need to avoid the tempting trap of analyzing advertising sources in a vacuum - it is easier and less time consuming but will likely to poor decisionmaking, as illustrated by an example cited by David - "For a large company, a recent study looked at multiple touchpoints leading to a conversion. When looking at click data alone, we saw that when users clicked on only one channel they had a conversion rate of 4.7%. When they clicked on two channels, their conversion rate almost doubled, to 8.5% -- and when they clicked on three channels, their conversion rate almost tripled, to 11.5%. (Channels included search, display, email, affiliates, portals, and two additional industry-specific channels.)"

April 26, 2007

This post from Andrew Chen, an entrepreneur-in-residence at Mohr Davidow, explains what he calls "10 obvious strategies" to acquire users. These strategies are not so obvious to marketers outside Silicon Valley. To illustrate, I challenge you to go to a marketer at any post-secondary online education provider and ask them the top 10 ways they drive potential customers to their website. It would be buying from lead vendors, adwords buying, email recircs and - I'm drawing a blank. They don't even have 10 strategies. Any for-profit educator that formulates a strategy to successfully leverage social networking, blogs, and Internet viral marketing tools will zip away in a Ferrari, leaving their Model T driving competitors in the dust.

April 03, 2007

Congrats to Toby Chu, a trailblazer in bringing for-profit education to the Chinese market, for closing a $5 million round of financing with the private equity firm Camden Partners. I have met Toby several times and he is the perfect person to bridge the gap between Western and Chinese culture to help eventually create a sizable for-profit education market in China. He already has a great start - his company, CIBT, operates four campuses in Beijing, two campuses
in Weifang, one campus in Anyang, and six
learning centers in other cities in China. He also offers curricula and joint degrees with U.S. based institutions like WyoTech (division of Corinthian), ITT TEchnical Institute and Western International University (division of Apollo Group).

February 20, 2007

I can finally share with readers one of several high impact projects I am working on. My employer, Career Education, announced on its earnings call the coming launch of online delivery of programs at its IADT design schools. I believe delivering quality design programs online is an underserved niche and I have headed up efforts to craft an operating model - primarily in marketing and admissions - that is unique in for-profit education. As we launch the website, announce programs and open up admissions over the next several months, I will be excited to share our efforts with all of you.

February 19, 2007

Two or three years ago, for-profit education providers viewed their marketing website with one end goal in mind - to provide
as little information as possible and drive a student to fill out a
lead form. A new piece of research confirms that any university that sticks to this strategy will be uncompetitive in the marketplace.

Education industry market research firm Noel-Levitz recently published three studies on what incoming college students expect from university websites. Not surprisingly, these students want to learn about school options by hearing about and interacting with students and faculty. These students use social networking, chat and web2.0 services as part of their everyday lives, so it is no surprise these are exactly the activities they want to be available on a recruiting website. Below, I have highlighted some of the top activities students said they would like to complete on college Web sites:

January 22, 2007

I have shopped all the major online schools and the only consistent thing across them all is the scripted nature of the conversations with admissions advisors. In the vast majority of calls to schools like UOPX or DeVry, there are several minutes of conversation that are scripted - so scripted in fact, that many admissions advisors seem to place their primary focus on asking the next question on the script rather than listening to the potential student. The best advisors are very different - they concentrate on building
rapport with the potential student and addressing that person's
specific situation and concerns.

There is a balance to strike between scripted and free flow conversation, but I believe - if you hire high quality inside sales professionals - that a simple call flow guideline works far better than a script. Of course, this call flow can be combined with call monitoring & coaching - regular monitoring will balance any concerns about advisors getting the university into regulatory problems and calls from your best advisors can be broken down to determine the best practices that can be coached to increase productivity.

What experiences have others had moving to this less scripted environment?

Assuming a net margin of 20%, estimated year 5 revenue would be ~$135 million.

This would mean a year 5 student population of ~7,500 students if revenue per student was $1,500 per month ($18K annually).

In today's competitive online learning environment, the school's plan seems overly aggressive . In the third year of operation, the cumulative loss could reach nearly $16 million, according to the financial plan. There is no reason they can't ramp marketing slower and have a lower burn rate to achieve profitability.

In addition to the financial plan issues and difficulties garnering faculty support (see my post on this), the school seems to be taking a somewhat haphazard approach to crafting its business plan. Rather than bringing on an experienced leader with a vision, they seem to be using a hodge podge of consultants to craft a vision while simulataneously looking for a chief marketing executive. The consultants include Compass Knowledge Group of Orlando, Fla., at $29,000 to assess the market for online nursing degrees - I have no idea why you need a consultant to do this - all you need to do is look at government published data for nursing degree growth and speak with large health care providers like Kaiser Permanente. Other consultants include Pamela Pease of Santa Fe, N.M., a former president of the online Jones International University ($83,500 contract through June) and Eduventures ($38,000 contract to assist with planning and marketing).

Most importantly, rather than pushing ahead aggressively with a rather haphazard plan, UI must work harder to build consensus amongst its constituents and find a plan that works for faculty and students without eroding their existing brand.

The article quotes Signal Hill Capital analyst Trace Urdan. "Nonprofits have begun to employ the student acquisition techniques
of the for-profit universe, further crowding the field of student
recruiters. Urdan
warns this isn't good news for Apollo Group Inc., and expects
traditional schools that have strength in certain niche areas to "peck
away" at Apollo's market share in 2007."

"People that might
have gone to the University of Phoenix are now going elsewhere," Urdan
says. "Apollo's approach of being 'all things to all people' was the
right approach when the market was brand new."

The article also references the lower price of traditional schools, echoing my post Room for a Value Play in Online Education. Citibank analyst Paul Beland states: "Nothing beats in-state tuitions at traditional publics, which for an
online degree can be 20 percent of the cost."

It's a tough slog ahead in my industry: a great deal of creativity and gumption will be required to create operating models that are sustainable and profitable as market competition continues to increase rapidly.